You've made it down the stretch and it's pay day – almost! You have a closing scheduled for a real estate deal all lined up and the Title Company sends you, usually 24 – 48 hours ahead a time, a copy of your HUD-1 Settlement. If you are buying it will let you know how much money you need to bring to the table and if your selling it will show anticipated net proceeds or profits on your real estate investment. Hold the Phone. Wait right there.
This is the one and only time you have to make sure you are getting PAID or PAYING the correct amount of money. It boils down to this document and this document only.
7 HUD-1 Lines To Check For Accuracy Before Closing
Address: Make sure the the property address is correct. A few years back I purchased a property that was on the county line. The property address was correct by the legal description was incorrect and the title company filed the deed and transaction in the wrong county. I did not find out until two years later when it was time to refinance for better rental cash flow profits.
Price: Agents, Loan Officers and Escrow agents are know to make the mistake of working off of an original purchase and sale contract. However, negotiations with amendments to the contract changing the purchase price can often get overlooked. Vital that the closing agent has this information before generating the closing docs.
Payoff: For a seller with an existing loan making sure your payoff is accurate is vital in ensuring that you don’t leave money in the banks hands. When a payoff quote is requested and more than 20 days has passed or a payment had been made, it's imperative that a new payoff quote be requested.
Tax Proration: Typically, when buying or selling a property, both parties are responsible for the pro-rated tax bill. This is your one shot at making sure you are credited (if buying) for the sellers portion of the tax year.
HOA: Homeowners Association Dues are typically pro-rated between buyer and seller. Foreclosures and Bank REO buyers beware. I closed on a property in October from Citibank whose HOA was due every November. My HUD one paid for the previous year but not the current year nor did it provide a prorated credit. Get this – I received a HOA lien notice March of the following year threatening foreclosure late fees, attorney fees and interest fees accrued daily. Yikes!
Commission: Earnest money paid is often held with the brokerage and credit towards their agent's commission. Also if you are dealing with an third parties like a wholesaler or short-sale investor their agreed upon fee and percentage payout need to be checked or accuracy and inclusion.
Cash From/To Borrower or Seller: I saved the best for last and should be the first place you look. Buyer or seller – going into the deal you have a general idea of what you are bringing to the table or walking away with. If the number is offer – start line by line – reviewing the entire HUD-1 Settlement Statement.
Find an error – get on the horn and bring it to the closing agent attention immediately. It might me a simple clerical error or missing document that can easily be accounted for.
I'm looking for real estate investors who have had HUD-1 errors…comment below with your experience and you may be selected to be interviewed for REIClub.com.